All posts tagged U.K. house prices

Crest Nicholson is testing confidence in the U.K. economy with a plan to return to the London Stock Exchange next month after six years as a private company.

Stephen Stone, the house builder’s chief executive, says the U.K. housing market is being supported by government programs to turn cheap bank funding into mortgages, and that steady employment numbers should help boost his company’s annual house completions to around the 2,500 mark in the coming year, from 1,882 completions last year.

Yet there’s little to suggest that the U.K. economy will roar back to life this year. The housing market is showing modest signs of improvement in the form of better affordability and lower mortgage rates, but volumes are still feeble. Monthly mortgage approvals tracked by the Bank of England are still running at about half their rate in the years before the financial crisis.

Potential buyers of the shares will probably want to take a close look at Crest Nicholson’s ability to make returns even if the market remains moribund…

U.K. house prices and activity picked up in the final month of last year and in another sign that sentiment is beginning to improve, house builder Taylor Wimpey Monday announced profits near the top-end of expectations.

RICS also reported that none of its survey respondents is expecting house prices to fall between January and March this year and the number of property transactions made in the first quarter of the new year are expected to rise.

Peter Bolton King, RICS global residential director, said:

“As we start the new year confidence to the housing market does appear to be improving. Our members are predicting that transaction levels will continue increasing in many parts of the country and it may be that we are now over the very worst.”

U.K. homeowners perceive the value of their home fell in November, but by much less than in recent months and by the smallest amount since July 2010, a survey by estate agency Knight Frank and data compiler Markit showed Friday.

And, looking ahead, home-owners expect the price of their home to rise, with the every region excluding Wales anticipating growth in the value of their property.

But, you might wonder, what difference does that make?

Surprisingly, quite a lot.

In the U.K., the practice of buying your own home remains wide-spread and something that people still aspire to, even in today’s environment of a weak economy and still high house prices relative to people’s earnings.

As a group, home-owner occupiers in the U.K. tend to feel richer and inclined to spend more when they think the value of their home is appreciating. But, when things move the other way and they think their home is losing value, they tighten their purse strings and try to save more.

That means that with the perception of increasing wealth, plans to spend may rise in the coming months. And, if home-owners who are planning to sell their homes manage to achieve the price they advertise it at, then they might be happier to pay more for the new home that they, in tuen, buy.

In the latest sign that the U.K.’s deepening economic malaise is hitting the wider real economy, two of the largest high street lenders, Halifax and Nationwide, reported house prices fell on both the month and the year in July.

The decline is the result of a combination of factors–recession, euro zone debt crisis, rising mortgage costs, jobs fears and weak earnings growth. That means Britons are increasingly feeling the pain of domestic and overseas weakness, and losing, bit-by-bit, what little confidence in the economy they have left.

U.K. house prices fell sharply in April, according to the Halifax survey out earlier Friday. But that doesn’t tell the whole story of the U.K.’s once booming housing market.

The Halifax House Price Index for April came just one day after the Nationwide index which reported a smaller but second successive monthly house price fall. Both reports said the main reason for the drop was due to a lack of demand as the Government’s first-time buyer stamp duty land tax break ended on March 24.

But, an ongoing lack of mortgage finance, as well as the rising cost of securing it and weak consumer confidence all continue to be significant, if not bigger problems for those with aspirations of buying a home at the moment.

“The bigger picture is surely that, with the economy back in recession, mortgage credit conditions tightening, mortgage interest rates edging up and confidence weak, the headwinds facing the over valued housing market are freshening,” said Ed Stansfield, chief property economist at Capital economics.

But, while the U.K.’s housing market is clearly weak, the steep 2.4% monthly decline, or £3,913 taken off the average price of a house for sale in the U.K. according to Halifax, might be overstating the situation.

Halifax’s closely watched index of house prices Wednesday showed a surprise increase in June. Although prices were lower in the second quarter than in the same period of 2010, the decline has slowed. The quarter-on-quarter fall was the shallowest in a year.

The start of a housing recovery? You’d be hard pressed to find anyone who thinks so. Even Halifax itself isn’t particularly bullish. Its in-house economist Martin Ellis suggested the market will show “broad stability” in the face of “significant headwinds.” June’s rise is largely a demonstration of how volatile the market is, a consequence of low levels of activity, he said.

Indeed data from the Land Registry, a government agency that puts together comprehensive data a few months after the fact, suggests momentum is squarely downwards.

The facts suggest his won’t change direction any time soon. The many factors pushing down on house prices include…

When U.K. mortgage lender Northern Rock was rescued by the Bank of England in 2007, home owners had good reason to fear a prolonged and deep fall in house prices was on the way.

That hasn’t happened, and the decline in prices has been nowhere near as sharp as during the last crash, which accompanied the recession of the early 1990s.

One key reason is the absence of forced sellers, or home owners who can no longer pay their mortgages.

Figures released by the Council of Mortgage Lenders Thursday illustrate just how minimal the pressures on borrowers has been, despite the weak recovery from a deep recession, rising unemployment and falling real wages.

In 2010, just 36,300 homes were repossessed by lenders, accounting for 0.3% of all mortgages and down almost a quarter from 2009. The final three months of 2010 marked the fifth consecutive quarter in which repossessions fell. Some of that reflects a less aggressive attitude on the part of lenders, and that probably has something to do with the fact that the government has big equity stakes in two of the leading banking groups, and has provided a good deal of support for others.

He points to a few reasons for a sprinkling of festive cheer over U.K. house prices. Yes, you read right.

“With the likes of mortgage providers such as Halifax, Nationwide plus seemingly popular property web sites like Rightmove signalling little more than doom and gloom for U.K. house prices over the past few months it is pleasant to read a contrasting view from a research company that calls itself Acadametrics.

“This view tells us that only now are house prices in England likely reaching a peak and that overall 2010 may be marked as a year of flat house price movement. I have no idea who these guys are but it seems to me that as they use initial housing data from the U.K. Land Registry plus the results from various other estimates that although they could just be a week or two behind the others in terms of working with up-to-date data that they are worth more than a passing glance.

“The Acadametrics report which is produced in conjunction with LSL Property Services goes on to suggest that any dip in house prices from here on will not in its view be that dramatic. The report findings would thus appear to confirm my own longstanding views that whilst house prices nationally are likely decline a touch during 2011 (taking regional variances into consideration we view the overall national decline in house prices will likely be close to 5% nationally during 2011 with London restricted to a fall of 3% or less) the underlying view is that from that point on house prices will likely follow a period of flat-lining for the next couple of years.”

Of course, when it comes to these things we all know surveys can be wrong. But Wheeldon thinks there may actually be something to it.

One of the prime ways in which quantitative easing is said to work is through the wealth effect.

By buying government bonds in the market, central banks reduce yields on risk-free assets. Falling risk-free yields drives yields down on risk assets too, which is just another way of saying it raises their prices.

Higher asset prices make people feel wealthier. The wealthier people feel, the more they spend and thus the more the economy expands.

That, by the way, wasn’t the way QE was originally sold. It was meant to be a way of by-passing a seized up banking sector in getting liquidity and possibly credit to firms that needed it. That didn’t seem to work, but asset prices shot up. And so central banks said, that’s what we meant to do all along.

U.K. house prices slumped in September, according to one of the raft of U.K. house price indexes Thursday, raising fears of a housing-market crash amid slowing buyer demand, growing fears over job cuts, rising consumer prices and still-tight credit conditions.

The 3.6% drop in September from August was the sharpest single-month drop in prices since records began in 1983 and means at £162,096, the average cost of a house in the U.K. is now £6,000 less than it was in August. Read our coverage here.

Prices are still 2.6% higher than they were a year ago, but it’s only a matter of a few months before this measure moves into negative territory the way things seem to be heading.

But what exactly would constitute a house price crash?

The definition of a crash, in this context, according to the Cambridge online dictionary is “when the value of … suddenly falls by a large amount”.

While the U.K. government’s austerity measures, to be announced later this month, make further house price drops pretty much a sure thing, they won’t necessarily result in a sudden drop.

But there are other issues. The number of properties advertised for sale is now rising each month, while the number of new buyers is slowing. Also, widespread cuts in government spending–set to total £113 billion by 2015 and result in up to 600,000 public sector job cuts, and the impending 2.5 percentage-point increase in the sales tax due in January, togetether with the continued tightness of mortgage availability all point in one direction. Further house price falls.

But the question is how quickly, or slowly will the year-on-year, real-term falls come? And how long will they stay.